2016 was greeted with a bout of nerves over the fate of the Chinese economy and, perversely, a weak oil price. To a first approximation, American markets have recovered the ground lost, but European and Japanese markets remain well below the values seen at New Year. At any time when markets get panicky, investors pour money into “safe haven” currencies, believing that they will see less volatility (and more upside) than the markets. The Japanese Yen is seen as such a safe haven currency and consequently, the Dollar fell from a New Year's value of 120.6 Yen to a low of 111.42 earlier this month and it ended Q1 having lost 6.3% against the Yen (combined with concerns over Brexit, Sterling has fallen by 10.2% against the Yen).

No doubt as a consequence, at least in part, of this global nervousness and the stronger Yen, Japanese business confidence has taken a hit, according to the most recent Tankan survey. The survey which measures the balance of businesses which are optimistic about their prospects against pessimists returned a value of 6 rather than the hoped for eight and much weaker than the previous reading of 12. The survey reflects the 3 month period to the end of March. The decline in business sentiment was the most marked since the end of 2012 and analysts expect it to decline further over the next quarter.

The Nikkei reacted badly to the Tankan, shedding 3.55% of its value. The index lost 10.7% of its value over the course of Q1 (excluding this fall). Inevitably, weakness in the Japanese economy has reignited expectations of further monetary easing by the Bank of Japan at its next meeting. However, a return of investor confidence may well see money flow back out of the Yen and into the markets as investors seek better returns (and a weakening of the Yen means taking losses on the “safe haven” position once rates drift back to the levels seen when harbour was made, so to speak).